Crank Up the Heat
What the frack?
The US Energy Information Administration (EIA) said in a new forecast that American households will once again witness lower energy bills this winter. That is one way to fight the snowy blues and gain the upper hand on that surly and unforgiving Old Man Winter.
According to the “Today in Energy” report, domestic households using electricity or natural gas to heat their homes in the winter will “spend slightly less” than last year. Researchers estimate that the northwest, which mainly uses heating oil, will see savings of 4%. Those living in the Midwest, who typically consume propane, will witness a 16% decline in their energy bills.
The only part of the country that might notice a jump in its natural gas bill is the south. Experts warn that costs are slated to rise 4%.
If accurate, this is certainly a positive news story, and not just from a personal finance perspective. In April 2019, Liberty Nation reported on a study that found thousands of deaths in the US were prevented each year because of falling household energy costs. It makes sense. If it costs an arm and a leg to heat the home, then households are going to cut down on consumption, increasing exposure to the cold and potentially risking an arm and a leg anyway. Now that energy prices are sliding, Americans are more likely to crank up the heat and sing Lovin’ Spoonful’s “Summer in the City.”
Just Don’t Call It QE4
The Federal Reserve is buying Treasurys, cutting interest rates, and getting ready to increase the balance sheet. But whatever you do, don’t call it quantitative easing. It’s not QE! Or, that’s the message that Fed Chair Jerome Powell is sending to markets after announcing that the Eccles Building is preparing to expand the approximate $3.7 trillion balance sheet again.
Speaking to the National Association of Business Economists (NABE), Powell revealed that now would be appropriate for the central bank to start adding to its balance sheet again. This past summer, the Federal Open Market Committee (FOMC) announced it would taper the tapering and then officially cease tightening. As the global economy cools down and financial markets stew in chaos, Powell thinks it is necessary to start buying short-term Treasury securities.
At the very least, this is a softer form of QE, but Powell even rejects that description. He told the crowd that the QE employed in the aftermath of the economic collapse was meant to spur short-term borrowing. This policy endeavor, he notes, is intended to prevent a repeat to the disarray in overnight repo markets – one party lends cash in exchange for securities, allowing companies to borrow cheap money.
“I want to emphasize that growth of our balance sheet for reserve management purposes should in no way be confused with the large-scale asset purchase program that we deployed after the financial crisis,” Powell said.
This comes just weeks before the FOMC holds its October policy meeting. Powell all but confirmed adding further insurance to the uncertainty surrounding the trade war, Brexit, and other geopolitical developments. The market widely anticipates another quarter-point rate cut, the third reduction in 2019. If the Fed does pull the trigger on another rate cut, it will bring down the target range of 1.50% to 1.75%.
Make Deficits Great Again
The Congressional Budget Office (CBO) released its estimate of the US government’s budget deficit for the fiscal year 2019. It wasn’t good: $984 billion, an increase of $205 billion from FY 2018.
The federal deficit accounted for 4.7% of the gross domestic product (GDP), the largest it has been since 2012. It is also 50% larger than when President Donald Trump received the keys to the White House.
According to the CBO, the federal government’s revenues climbed by 4% to $3.46 trillion, driven by greater individual, payroll, and corporate tax receipts. Spending surged by more than 8% to $4.45 trillion, caused mostly by spikes in mandatory programs, including Medicaid, Medicare, and Social Security.
President Trump and the Republican leadership say that they will do better in the future and tackle the budget. For now, however, it is about political survival and maintaining control of the White House and Senate and retaking the House of Representatives next year. But how many times do they expect fiscal conservatives to fall for this nonsense? What about principles?
The deficit is on an unsustainable path, piling on the near $23 trillion national debt. The tab will need to be covered somehow, and it will most likely be paid for by the next generation of taxpayers. Sad! What’s worse is that you can expect the federal government to increase the deficit during the next recession because it will inevitably spring into action to try to stimulate the economy and pour billions into public-works schemes and other wasteful endeavors that provide no real long-term value to the country.
Baby, It’s Red Outside
Although Fed Chair Jerome Powell conceded that the federal deficit is unsustainable, the institution is the one enabling this spending addiction and monetizing the debt through its Treasury purchases and overall QE, er, non-QE initiative. How long can this charade keep on going before a sovereign debt crisis hits the shores of the United States? Eventually, winter will arrive for the US government, but consumers will at least get to stay warm thanks to lower energy bills. There is a bright side to everything.